Laxman Narasimhan
Chief Executive Officer at Starbucks
Thank you, Tiffany, and good afternoon, everyone. It's both a great privilege and responsibility to serve as Starbucks, CEO. On behalf of the Board of Directors, and our Starbucks partners. I'd like to thank Howard Schultz for his leadership of the company over the last year. Howard's return in April of 2022 came at a pivotal moment for the company, and with great personal and family sacrifice. And I want to personally thank Howard for his over 40 years of ingenuity, creativity, service and enduring love for our company and the iconic Starbucks brand. And for his willingness to always lean-in in service of our partners and customers.
Since joining in September, the company has given me a uniquely designed program to fully-immerse myself in all aspects of our business. The program involves spending time in our stores, distribution centers, roasting plant support centers and on our own coffee farm in Costa Rica. And I have traveled to meet our partners and business leaders in several international markets across Asia, Latin America and Europe. Well, Howard formally ran the company through the second quarter, my immersion exposed me to all aspects of day-to day leadership responsibilities and well-prepared made to transition into the CEO role on March 20, a few days ahead of our Annual Meeting Shareholders.
I've learned about the company through the eyes of our founder, customers, farmers, partners and the community, and through listing meetings with our shareholders. Perhaps most importantly, I have neem listening and learning from our partners working side-by-side to earn my barista certification and developing the deepest level respect for coffee and to barista craft. In my time with the company, I've also been working closely with the executive leadership team. I have been impressed with the great progress and forward momentum of the company.
And I am optimistic about our long-term growth headroom and the margin improvement potential. We also see great opportunity to further strengthen the business, elevate the brand and do everything we can do to make this a great place for partners to work. We will continue to build our reinvention plan with additional opportunities. And we will update you with these additional plans in due course.
Let me start today's call by sharing my overarching observations, the progress and momentum from our reinvention and the opportunities ahead for Starbucks. Rachel will then walk you through the details of our second quarter fiscal year 2023 performance. We will then open the call for Q&A.
What you can take away today is confirmation that we are well-positioned to continue to unlock value for all our stakeholders. My first observation is that Starbucks is uniquely in the business of human connection. Since our earliest days, we have been a brand that brings people together. From the vantage points of serving customers in stores and in drive-through windows, many are coming to us for connection with others. There is no doubt, Starbucks has conventionally been the mainstay in meet up spot.
At the same time, nearly two-thirds of U.S. consumers are by themselves when seeking a beverage or food location. As the world in a crisis of disconnection, where loneliness, division, and polarization of become far too common, the everyday ritual of coffee is a powerful way to make connection happen with others and with yourself. Starbucks delivers connection, no matter how you visit us in stores, drive-throughs, or digitally, we are there to provide this connection anyplace, anytime.
That brings me to my second observation. Our performance was strong, but our health could be stronger. I've worked side-by-side with our partners in our stores and have experienced first-hand how our stores and our operations are still evolving to meet the demands of our customers. There is more work to do to tailor our stores, and the demand that we see; advance our technology; enhance how we innovate our equipment; and also more fundamentally, how we get back to focusing on fundamental operations and executing better.
A priority that is evident with my deep engagement over the last several months across supply-chain, technology, reinvention, store development, store operations, marketing and product. Take for example, the siren system that we showcased at Investor Day. This is one example of how we can continue to do more to better support our stores and inturn our partners. And is also, and by the operating processes that we have in our stores and how we make them even more robust. To strengthen our health, we need to think of our business as having theaters in the front, with a factory in the back.
Our theaters aware [Phonetic] store partners are focusing on their craft and delivering an elevated experience to our customers. To simplify the store partner experience and drive greater productivity, within and beyond the store level, we see significant efficiencies in our supply-chain, support systems, and processes. This is what I mean by our opportunity to strengthen our factory in the back.
Let me give you a few examples. Today, our store deliveries involve a high-touch one-size fits-all model. We are out-of-stock on more items than we would like. Through segmentation and a format-specific approach, we will be able to lower costs by creating a better experience for our partners, and ultimately for our customers. We also have abundant opportunities to optimize what we buy across several areas as well as opportunities, and how we buy it. Currently, we have over 1,500 cup and lid combinations across our network. As we streamline, we will create a portfolio of fewer more sustainable and less costly cups, while further simplifying operations in our stores. All of these opportunities will deliver topline growth and margin expansion and create long-term value.
My third observation is that, we were a company that strives to be different and we are now operating in a different kind of world. One thing that has stood out to me here at Starbucks is our culture. So it's my first day, it has been clear that Starbucks' culture is like that of no other company. There is a strong partner-first mentality, that is both top-down and bottom-up. At the same time, the world in which we operate is evolving. There is clear opportunity to build stronger capabilities, drive even deeper engagement and adapt a global mindset. With that in mind, as a leadership team, we fully acknowledge a need to evolve and modernize our brand, our business, our capabilities and our culture to meet the needs of an ever-changing world.
We are therefore re founding the company, and as part of that, we are getting back to its basics. You already know about our reinvention. We've also just recently introduced a new mission and setup promises as a contemporary expression of our mutual success. Our mission is this, with every cup, with every conversation, with every community, we nurture the limitless possibilities of human connection. The rollout of this work across the globe is well underway. It is driving conversations at all levels within the company and is being met with overwhelmingly positive reception.
As we evolve, what differentiates us, will remain. We will modernize, yes, and we will stay true to who we are at our core, much like our promises say. We are a company that had its best works to build bridges to a better future for our partners. And our best, we uplift the every day for our customers. At our best, we ensure the future of coffee for all. At our best, we made positive contributions to our communities. And at our best, with the environment, we give back more than we take. And as a result we generate enduring long-term returns for our shareholders. These have been mined three overarching observations. We are in the business of human connection. Our performance is strong, but our health can be stronger enabled the theaters in the front, by strengthening the factories in the back. And we continue to strive to be a different kind of company that is now operating in a different kind of world.
Through this lens, we will be disciplined in delivering against what has been limiting us in our journey towards a limitless future. We are seeing great progress of the work underway with our reinvention plan and the capacity for much more. We've only just scratched the surface of what we can accomplish with this iconic brand and company. We see significant growth headroom and the opportunity to further separate Starbucks from others. We also see opportunities to expand margins while continuing to invest in the business for the long-term.
With that let me turn to our second quarter performance. The Company exceeded expectations in Q2 fiscal year 2023, by nearly all measures, delivering strong results across the broad Starbucks portfolio. Our performance, including continued success in the U.S. and international markets, as well as the recovery we see in China can be attributed to the strength of the global brand, relevant innovation in our product stores and powerful execution by our partners. Let me first start globally and then with North America and the U.S.
Our Q2 revenue was $8.7 billion up 14% for the prior year, and up 17% excluding more than 2% impact of foreign currency translation. North America delivered revenue growth of 17% in Q2, growing to $6.4 billion. We captured remarkable 11% comp growth globally with 12% comp growth in both North America and the U.S. for the second quarter, driven by mid-single digit growth balanced between transactions and ticket. Our North America growth comes on-top of 12% comp growth in the prior year. We expect this demand to continue as we push the envelope with innovation. A recent example is the highly successful launch of Oleato, an innovation Howard identified in has personally led for us.
In fact, we've already reached an audience of 5 billion people, since our announcement of the February global launch, the Starbucks Oleato beverages, making this one of the top-five product launches in the last five years in terms of brand awareness and excitement. The new innovative beverage platform is currently available in 650 stores across three markets, Italy, Japan and the U.S., given the success we are seeing. We look forward to bringing this exciting new offering to more stores and more markets around the world this year. Scaled profitable, innovation is one of the things that fuels our performance and is a continued area of focus.
Our performance is a result of a near-perfect intersection of three things; one, our successful innovative beverages suggests our pistachio Cream Cold Brew, that inspires the expanded use of modifiers; two, our in-demand food portfolio which resulted in record sales of our Sous Vide Egg Bites and breakfast sandwiches; three, our attractive convenience capabilities of mobile order and pay, drive-through and delivery, we saw sequential improvement. And now comes for 74% of Q2 U.S. company-owned revenue. You can expect us to lean strongly on purposeful innovation to further capture the tremendous opportunity both in what we do and in how we do it.
Speaking of convenience channels, our 90-day active Starbucks Rewards Membership added more than 400,000 members in the quarter in the U.S., bringing our total membership of 30.8 million members. In addition, we've increased membership by 4 million year-over-year in the U.S., representing 15% growth. Rewards members account for 57% of U.S. company-operated revenue in Q2, which marks the highest contribution on record and represents growth of 3% on a year-over-year basis. We are excited about our growth in active rewards members as it's a contributing factor in consistent demand. We have been a Vanguard in this area, and you can expect us to further invest and lead.
An example of that investment is Starbucks Connect which is now in over one-third of our U.S. licensed stores, giving our customers even more opportunities to engage with our brand. With such a diverse portfolio across our U.S. licensed locations such as hotels, airports, and other retailers, coupled with increasing offerings of convenience, we were able to capture further demand evidenced by revenue in the quarter, up 25% year-over-year, supporting our strategy to meet and serve our customers wherever they are.
Moving on to reinvention. We are making great progress. The investments we made in our partners, stores, and technology are already producing a return whether through productivity gains are partner satisfaction. We are pleased with the multifaceted progress to-date. For example, Barista turnover reduced by over 9% from a high in March Q2 of fiscal year 2022, leading to fewer, newer highs of a store. We have been able to increase the average hours per barista per week by 4% year-over-year, a metric we know is one of the many meaningful inputs and achieving the desired compensation of our partners.
Clearly partners scheduling is a real opportunity for us and we are laser-focused on it. Additionally, items per labor hour, a metric which reached a record high in December 2022, continued strong pace into and throughout Q2 despite seasonal trends. This demonstrates increased productivity in the midst of strong volumes, all by partner engagement and customer connection scores stabilized. The rollout of handheld cold foam blenders supporting customization demand commenced in the quarter with completion targeted for third quarter, just in time to support our summer demand as the desire for cold foam customization continues to grow.
The Clover Vertica brewers also began to roll out in this quarter, and we'll be in nearly 40% of our company-operated stores across the U. S. by the end of this fiscal year. The Vertica offers our customers our freshest Clover brewed coffee, while driving efficiencies in time and waste across our network. This is yet another example of how innovation amplifies what we do best, in this case, coffee served even better. The ultimate proof point of innovation and the progress against our reinvention is our Q2 margin in North America of 19.2%, a 200 basis point expansion year-over-year. We have more to do to reinvent our business. Though we have further opportunity ahead, we are proud to see that our strategies are working and momentum is building.
Moving on to International. We are pleased with the strength and growth across our broader portfolio. Q2 revenue was $1.9 billion, up 9% from the prior year and up 19% excluding 10% impact of foreign currency translation, representing our third highest quarterly revenue due largely to China's faster-than-expected recovery. We also achieved our highest ever quarterly system sales internationally, and we delivered a company-operated 7% comp, driven by transaction growth, spotlighting demand. Strong comps were also captured across the regions outside of China with markets like Japan and the U.K., both posting double-digit comps for the eighth consecutive quarter.
We're very pleased to see our International store strategies working. In the quarter, our net new stores grew by 363, representing 8% growth year-over-year. As we look ahead to the end of the fiscal year, we will reach 20,000 stores across the International segment on pace with a growth strategy we outlined at Investor Day. We expect China to remain on track to achieve our 13% net new store, a growth target for this year. Additionally, Asia Pacific, EMEA and Latin American markets, are also expected to contribute meaningfully, becoming an area of further emphasis and a more significant contributor to our overall global growth.
Moving on to China. Q2 marked a significant turning point when we finally began to emerge on three years of unprecedented COVID disruptions, embarking on the recovery journey that we have envisioned. We saw a robust recovery in Q2, reinforcing the resilience of our partners, the strength of our brand and the close relationships that we have built with our customers. We experienced faster-than-expected recovery, closing the quarter with nearly $800 million in revenue, up 3% from the prior year and up 11% excluding the 8% impact of foreign currency translation. Comp growth of 3% marked the first positive comp since the third quarter of fiscal year 2021. Importantly, we accelerated our store development in the quarter, opening 153 net new stores, more than doubling the net new stores in the previous quarter.
We now operate over 6,200 stores across 244 cities, keeping us on track to meet our goal of 9,000 stores by 2025. Our bold decision to continue opening new stores over the past three years, despite COVID disruptions in mobility restrictions, is paying off as they continue to deliver returns and profitability.
Further accelerating recovery is our rapidly expanding omnichannel business. Starbucks Delivers achieved 21% year-on-year growth to make up 23% of the sales mix, while overall mobile ordering reached 47% of sales, 4% over the prior year. Delivery demand remained robust even after consumer mobility has recovered demonstrating that it is highly incremental and interwoven into our customers' lifestyles.
Our attractive portfolio supports the increasing demand, putting us in a position of strength to capture opportunity as China transitions due to the next phase of recovery. While we don't expect a straight line recovery, we are confident in our long term opportunity. We look forward to serving our customers with the elevated experience only Starbucks can deliver.
Now let me wrap up the segment performance with Channel Development. Our Starbucks brand and successful partnerships continue to fuel the success of our channel development business with revenues of over $480 million in the quarter, up 4% year-over-year. Our U.S. at-home coffee continues to resonate with customers as are winning the seasons with our well received promotions and product launches.
In terms of ready-to-drink, Starbucks has outgrown the category in sales growth, for two consecutive quarters and remain the #1 brand in the U.S. To continue this trend, we launched a much anticipated pink drink and Paradise drink, which have already been met with overwhelming excitement.
Before I pass the call over to Rachel, I want to again extend my gratitude to our partners, our leadership team and to Howard for the significant progress we have made as a company this past year. I also want to reinforce my confidence in our Reinvention, the work underway to refound our business, brand and culture and our position to fully realize the limitless potential of Starbucks.
For our long term sustainable growth, we will look to discover ways to first; further elevate the brand by getting the basics right, operating our stores well and with a beverage forward food attached focus for renovation. Second, build on our leadership position in digital by scaling and introducing new and relevant customer experiences.
Third, evolve to a more global presence for our business and for our brand. Fourth, work to become less wasteful and move with greater speed, and fifth, and critically reinvigorate our culture around what it means to be a partner at Starbucks. With a Reinvention Plan driving progress against our business goals, a contemporized mission and a brand differentiated human connection, our momentum is strengthening the business overall. Our focus on delivering elevated experiences will continue to set us apart.
As I look to close my remarks for the call, I want to reaffirm our guidance for the year, reflecting my optimism for our future even while recognizing we are operating in a challenging environment. I have great confidence in our leadership team and our partners as we carry on this journey together. We continue to build our plans for the medium to long term to recognize our limitless long term growth potential. I could not be more excited, nor more grateful for the opportunity to build upon Starbucks' iconic legacy and shepherd in a new era for the company.
With that, I'll now turn it over to Rachel to discuss our Q2 fiscal year 2023 results in greater detail. Rachel?
